Why You Should Consider Opening a 2nd Bank Account

Michael MicheliniBanking, Blog, Corporate3 Comments

Banking, without it most of us cannot operate our businesses.

That is, unless we are those sales reps (I like to call them entrepreneurs) downstairs in Cheung King Mansion. You know, those hustlers trying to sell me suits and watches. Those guys most likely operate in cash. As annoying as they are, I do gotta respect their hard work.

Most of us reading this operate their businesses via banking.

As this blog has grown more and more people have reached out to me nervous about just having 1 bank account for their Hong Kong company. They are looking to get a second bank setup.

Let’s dig into why people are thinking this, and what you can do to get a second bank account for your business.

Oh Tell Me Why?” Reasons You’d Consider a 2nd Bank Account

Let’s first cover the various reasons people have been looking into a second bank account.

Backup in Case The First One Is Suddenly Shut Down

The world is going crazy! Banks are more and more nervous they will be getting massive fines from the US government. So they need assurance their clients are doing legitimate businesses. What is your idea? Whether you think it is the job of the bank or not, governments want banks to know what each business is doing. Make the bank guarantee they are not enabling:

  • money laundering
  • trafficking
  • illegal gambling
  • terrorism organizing
  • other horrible activities.

If these activities come back to the bank, it seems that the bank is going to get massive slap on the wrists.

I have talked to many HSBC reps who have told me that they are sending out letters to close thousands of clients accounts. I couldn’t get details on which clients and why. I’m told these clients get a letter in the mail that they have a limited amount of time to close their account and withdraw all the funds from the account.

Scary right?

So, if you are operating with just 1 business bank account and you get this letter – your life is going to be a nightmare for a while. Your options are to get the funds out of that account ASAP. Maybe wire transfer them to either your personal account, to another business somewhere, or maybe to a friend’s company to hold for you.

The bank will hold your money safe in the meantime.

After your account is “taken care of” – you’ll need to find a new business bank. As we have documented in our experience visiting almost every bank in Hong Kong, it is getting harder and hard.

So the most logical thing, but also painful, is to get a secondary bank account opened up in case your primary bank is ever shut down.

Reason 1, done!

Operate a Second Business Cashflow

We have had a podcast about branch companies in Hong Kong. Whether you do that, or just have a second bank account in the same parent company, you’ll want a separate bank account.

This is for accounting and reporting purposes.

You will be able to see the balance in each account, and see the activity. You’ll get an “auto-filtered” view of the business line via that separate bank account.

Let’s take an example. A client I am working with is starting to get affiliate commissions from a factory he works with- for introductions and territory agreements. He wants to keep these commissions separate from his normal import and export business. Thus by having a separate bank account, he tells the factory to send the commissions to that bank.

Later, as he grows the new business line, he can make budgets, hire staff, invest in marketing as its own. from his traditional trading company bank account.

To give both sides of the coin, you can do this in the same bank account. If you use accounting software (which I hope you do!) you can make different classes (categories) for each business line. When you enter the transactions, you separate the business lines.

But a bank account is a lot easier than trying to run reports in your accounting software. Plus, the balance is the balance, right away you know your cash on hand for that business line.

Major Client or Supplier Has a Bank Account At That Bank

Maybe you’ve developed a strong business relationship in your Hong Kong business. You are sending money on a regular basis, and you have to pay the inter-bank fee.

You know that you will have a long term relationship with this company, and maybe they can’t get an account at HSBC (for example) or aren’t willing to. You can then setup an account at their bank, for example Hang Seng.

Once you’re both at the same bank, the bank fee is zero, and instantaneous. Kind of like those big deals in the action movies. The scene where one of the counterparts is on the laptop typing in the bank information while the other is showing them the briefcase of the “goods”. Money comes in, confirmed, and briefcase hands over.

Boom and no bank fee!

Another example, is Braintree Merchant account. They have a Standard Charter bank and if you also have an account there, you can avoid the $25 USD bank transfer fee for USD remittance. Curious about this, you can listen to David Hehenberger talk about it on episode 86.

My Chinese Factory Is Always Changing Its Bank Account

Here is a funny one, and one I am not sure is a justifiable reason on its own. Many people I talk to joke that their Chinese factory is always notifying them of a new bank account to send their bank wire to.

That is a red flag to me.

If your factory is always changing their bank account, I’d ask them why that is? Maybe this is a separate blog post I can write up later. If a factory kept asking me to send to a different bank account, I would want an explanation. Be extra careful the sales employee aren’t playing tricks. They may be planning to quit and wants your payment for their personal holiday.

In any regard, this has been a reason others have told me they want a bank account.

Convinced to Apply For Your Second Bank Account? Steps To Consider

Any, or all those reasons above got you sold on opening a second bank account in Hong Kong? OK, don’t freak out too much! Do legitimate business with your current account. Be thankful you have a bank account to operate from for the current operations.

Most likely you’re doing things fine, and you have passed your first year renewal for your company?

There is always this basic question from a banker when opening a new account:

“Is your company over 1 year old?”.

Most of us answer now, because we just setup the company and need a bank account. But because you’re a bit more senior here and have been operating a bit- I have a feeling you may answer yes.

Answering yes – they will ask you to provide a few more documents. The main one being your annual return. Maybe your last auditor’s report too.

And because now your company has been operating for a year, they will see how big your company is.

When your company is just getting set up, the sky is the limit and you can discuss your big goals and financial projections. But now that you’ve been operating for a year and have some activity, the banker will have a much more clear, cut and dry analysis to make.

The bigger you are, the more likely you are to get approved.

It’s life, it’s business. The bank is taking a risk to take you on as a client. Crazy to think that, I now. If you’re going to be so small that they don’t earn much in fees or holding your funds, it may not make sense for their risk department.

So, think big, and do big things! Motivation for ya.

Be Patient – It May Take a While

Banks have been getting more and more backed up with new account opening forms. Some have said it will take up to three months!

Because you already have an account this won’t be as detrimental to you.

I was at BEA (Bank of East Asia) and the banker told me a crazy story! He said even after they approve the bank account and its active, you cannot send wire transfers (T/Ts) for 3 months. What? I told the banker, what can I do with a bank account when I can’t send or receive money internationally?

Guess that bank would only be helpful for those who operate locally in Hong Kong.

But that is the whole idea with these new regulations – they want you to be in Hong Kong. Often times, they will ask you to come back in person a couple more times to file more paperwork or pick up documents. I believe this is almost a test to see if you are operating locally in Hong Kong or not.

A few clients I am working with have been here a few times in the last couple months to meet bankers. Much more than they were expecting to when they first got started with the business setup.

Keep this in mind. Be zen. Be ready for anything. Have other ways to operate your business if it is your first business bank account, and if your second – be grateful you have one bank account already!

Another Option – Open a 2nd Bank Account At Same Bank

A few people have opened a second bank account at HSBC, for example. This could help you if you are just trying to separate 2 business lines.

You’ll still need to reapply from scratch. It will of course help that you already have a banking relationship at the firm, which goes in your favor. But they still will need all the due diligence and risk assessment for this new bank account. And fee structure!

The good thing about a second bank account at the same bank is that you can have different signers in each account. So for example we discussed the affiliate commissions from the factory earlier. If this business owner later hires a manager to operate this business division, he can add the manager as a signer on that account. There is of course risk giving anyone authority on your account, and you need to fully trust them.

But you will limit your risks to one of the bank accounts, not both.

Yet, if you’re applying for a second bank account for protection in case the current bank shuts down your current account, getting it at the same bank doesn’t make sense. One would assume if they shut your 1st company account down, they would see a second bank account in the company name. They would also have a termination letter sent to that client’s location (if there are different contact details).

Getting It At A Completely New Bank?

So I assume you’ll go to a new bank. Don’t forget to check over our bank account application experience post for tips on the various banks.

They will ask if you have an account already in Hong Kong. Saying yes is a GOOD THING! This will help in your application, so please do not hold back and share with them you have another bank.

Next, they will be curious why you want a new bank account. Saying because you’re nervous the first one may get closed is NOT a good answer, I hope you get that.

I’d explain that you have clients who have accounts in other locations and they prefer to send money to this bank. The best is if you can get an introduction from a client who has an account at this bank, then it makes total sense for the banker.

Get a Bank Reference Letter From Your Current Bank

The banker at this new bank would love to see you are a good and upstanding client at your current bank. The best way you can show this is with a bank reference letter.

What’s a bank reference letter?

There isn’t a standard template. The main idea is that the bank where you’re currently a client writes up a simple one page letter. They vouch for you (and your company) have a current account with them. It would mention that you are in good standing. It is also important that it has that bank’s letterhead (logo, bank address, etc) on the top of the letter.

And as a lot of things in Hong Kong, if you can get an original copy rather than a scanned or printed version, that is worth its weight in gold.

This letter will make your life a lot easier for opening a second bank account in HK.

Another Option – Use a Cross Border Payments Company

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What Do You Think? Opening a Second Bank Account? Tips / Tricks?

So I hope you enjoyed this article! Let’s all put our heads together and solve this issue of banking in Hong Kong.

Have you tried to apply for another bank account? Good experience? Or shown the door right away.

I’d love to hear it, and other readers I’m sure will learn a lot too! So please leave a comment below, and share this guide with friends who think will benefit.

Good luck to all!

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[…] yet “hedge” yourself, is to have bank accounts in multiple jurisdictions. We have talked about second bank accounts in a dedicated blog. As we have seen around the world, banks and governments are similar and […]

Daphne Gilpino
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Daphne Gilpino

I like how you said that getting a bank reference letter from our current bank is great way to show a new bank that we are a good and upstanding client. My husband and I are thinking about starting a business bank account for the small business that we’ve been running from home. I’m glad I read your article because I didn’t realize we could get a reference letter from our personal bank to help show that we’re good clients.

tyler johnson
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tyler johnson

That’s good to know that some clients would prefer to send money to a specific bank. I would think that would be a good reason to switch. I would hope that they would want a good bank that would have a bunch of cool extras like video chats with bankers and other incentives.